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Private equity deal flow sinks in Europe in wake of Brexit vote: Research

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The value of private equity deals in Europe has slumped by nearly a quarter during the first nine months of 2016 compared with last year, as the pace of deals in the U.K. and Ireland showed a marked decline in the wake of the EU referendum, according to numbers from data provider PitchBook.

The first three quarters of the year saw 249.4 billion euros ($275.9 billion) invested into 1,989 deals, heralding a respective 23 percent and 11 percent slide in both measures of activity, compared to the same period in 2015.

Numbers out of the U.K. and Ireland since the June 23 vote to leave the European Union show a 34 percent tumble in deal value and 14 percent pullback in the number of deals executed. Part of this is attributable to the near 12 percent drop the British pound suffered between the vote and the end of the third quarter, rendering lower the value of deals done when translated into euros for reporting purposes.

The so-called Brexit effect has had conflicting effects on deal-making appetite, with this initial data suggesting the political and economic uncertainty that accompanied the widely unexpected vote had weighed on enthusiasm for large-scale capital commitments from investors.

However, given the severely weakened sterling – which has continued to plummet during this quarter – the repricing of potential targets is likely to boost the appeal of British companies and assets going forward, say analysts at PitchBook – particularly for private equity firms which enjoy longer investment time frames that can be helpful in riding out short-term volatility.

No more megadeals?

A sharp drop-off in megadeals is a key feature of this year's data too, with only two deals above 2.5 billion euros being completed so far, down from 19 done over the same period in 2015. This stands in sharp contrast to the U.S. where appetite for large scale buyouts by private equity has been robust.

The slowdown in fund managers putting money to work has not stopped investors from directing fresh money towards private equity with a total fundraising haul of 41 billion euros across 63 vehicles for the first nine months of the year, according to the research. This came in more or less in line with last year.

The two largest fundraisings were achieved by France's Ardian which pulled in 4.5 billion euros in just four months for its Ardian LBO Fund VI and Macquarie which raked in 4 billion euros within eight months of launch for its Macquarie European Infrastructure Fund V.

According to Martin Stanley, global head of Macquarie Infrastructure and Real Assets (MIRA), plenty of subsectors within the broad infrastructure space offer investment potential.

"This capital raise took MIRA's global fund raising to $29 billion in the past five years. The investment strategy for the latest fund is focused on investment opportunities in utilities, transportation, communications infrastructure and renewable energy throughout the European region," he said.